Starbucks Faces Operational and Valuation Challenges: Analyst Downgrades to Sell

In a report released today, Andy Barish from Jefferies downgraded Starbucks to a Sell, with a price target of $76.00.

Andy Barish has given his Sell rating due to a combination of factors including concerns about Starbucks’ current valuation and operational challenges. The stock appears to have exceeded reasonable expectations for improvement, particularly given the lack of clear signs of better fundamentals. Barish points to alternative data sources, such as credit and debit card transactions, foot traffic, and app usage, which suggest that the company’s U.S. sales estimates may be overly optimistic.
Additionally, there are significant strategic and operational hurdles that Starbucks faces, particularly in China, where the competitive environment is intensifying. The potential sale of its stake in China might not yield the expected value, further complicating the outlook. Barish also highlights the company’s need for substantial investments in people and technology, which could pressure margins and earnings in the near to medium term. Given these challenges and the current high valuation of the stock, Barish believes a downgrade to a Sell rating is warranted.